In developing a long$-$range capacity plan, a firm must make a basic economic trade$-$off between the cost of capacity and the opportunity cost of not having adequate capacity. Capacity costs include both the initial investment in facilities and equipment and the annual cost of operating and maintaining them, much of which are fixed costs. The cost of not having sufficient capacity is the opportunity loss incurred from lost sales and reduced market share. Having too much capacity, particularly if demand falls, can be devastating. For example, International Paper recently closed its Franklin paper mill in Virginia. The mill had a capacity of $600,000$ tons per year, but demand had fallen $30$ percent and was forecasted to continue falling, much of it a result of new technologies such as e$-$mail, Kindles and iPads, and electronic transactions.Footnote Too little capacity, on the other hand, can squeeze profit margins or leave a firm vulnerable to competitors if it cannot satisfy customer orders.

Long$-$term capacity planning must be closely tied to the strategic direction of the organization$$what products and services it offers. For example, many goods and services are seasonal, resulting in unused capacity during the off$-$season. Many firms offer complementary goods and services, which are goods and services that can be produced or delivered using the same resources available to the firm, but whose seasonal demand patterns are out of phase with each other. Complementary goods or services balance seasonal demand cycles and therefore use the excess capacity available, as illustrated in Exhibit $10\mathrm{.}6.$ For instance, demand for lawnmowers peaks in the spring and summer; to balance manufacturing capacity, the producer might also produce leaf blowers and vacuums for the autumn season and snowblowers for the winter season.

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